One of the invaluable people to have on any real estate team is a finance broker. Apart from knowing what loan options will get you into the deal you have found, many brokers are also experts in their local real estate market.
For example, the broker I use knows in detail almost every area within a minimum of half an hour's drive from my house. Considering that within each suburb there are micro areas, even streets with different dynamics to the rest of the suburb, this is valuable information to have. Learning this would take me years of experience. While I learn, I can leverage my broker's knowledge and make great investment decisions.
Another thing is that many brokers have access to the same information banks use to value a property. Even if you aren't planning on obtaining bank financing, this is VERY important to know as it helps you determine what the property is worth, so you know when you're getting a good deal. And if you're planning to sell the property it's good to know how much a bank will lend to your buyer- will they afford to buy it off you?
One caveat to be aware of when looking for a good broker is that finance brokers are paid by the banks for selling you a product. They do get a commission off the loan you apply for. In some cases the worst loans can pay the highest commissions, so it's important to know that you have a broker looking after your best interests, not theirs.
One way to test out if you've got a good broker is to test them out on how helpful they are with their property knowledge. See how much help they'll give you on valuing a property. If they're happy to give you free information about their experience with an area it is a good sign. Mine will email me a CMA (comparative market analysis) anytime I'm interested in a property because he knows if I do buy one I'll probably go to him if I want bank financing. He also gives a dollar value on what he thinks it's worth and so far he has been on the dollar EVERY time. Every single time.
Another way is to find past clients and see what experience they've had. You can find reviews on the Internet or check with your local investor club and see what anyone there has to say. Lastly, when using bank financing with or without a broker, always make sure you read the loan document fully to make sure you are aware of any hidden fees or conditions on the loan or property used as security.
Showing posts with label property. Show all posts
Showing posts with label property. Show all posts
Monday, June 15, 2009
Saturday, June 13, 2009
How Important it is to form a Money Making Team
Yesterday I spoke about the help a broker gave me with one of my deals. It shows just how important it is to have a good team in place when you make money.
Think about the guy who used to own the 29 lot property (before the bank took it back): he tried to sell them for $220K when they were worth a maximum of $150K. He had an agent on his team (from out of town?). He even held a family day with jumping castles to try and sell the lots. But he didn't succeed. Why? He was missing important people in his team.
If he had a good team with a local agent or broker, he would have known the properties were only worth $150K before he began. He could have used more accurate numbers in figuring out his feasibility on whether the project was worth doing before he began. And he could have avoided the process of foreclosure and repossession. OK, I'll give it to him that prices dropped within the time frame that he tried to sell him. But if he started with more accurate projections he could have sold some of the properties before the price drop and still come away with a profit of some sort.
It's important to have good honest team members who want to make you money as well as their own wealth. An agent who gives inflated valuations of properties isn't a good member of your team. If you base your numbers on their expectations you could lose a lot of money. So you've got to check that your team members are telling the truth with actual data, for example recent sales and Days on the Market statistics. Of course, you don't say to anyone that you think they're lying, but most agents will be happy to give you a CMA (comparative market analysis) on a suburb you're interested in. After all, you are their business!
Think about the guy who used to own the 29 lot property (before the bank took it back): he tried to sell them for $220K when they were worth a maximum of $150K. He had an agent on his team (from out of town?). He even held a family day with jumping castles to try and sell the lots. But he didn't succeed. Why? He was missing important people in his team.
If he had a good team with a local agent or broker, he would have known the properties were only worth $150K before he began. He could have used more accurate numbers in figuring out his feasibility on whether the project was worth doing before he began. And he could have avoided the process of foreclosure and repossession. OK, I'll give it to him that prices dropped within the time frame that he tried to sell him. But if he started with more accurate projections he could have sold some of the properties before the price drop and still come away with a profit of some sort.
It's important to have good honest team members who want to make you money as well as their own wealth. An agent who gives inflated valuations of properties isn't a good member of your team. If you base your numbers on their expectations you could lose a lot of money. So you've got to check that your team members are telling the truth with actual data, for example recent sales and Days on the Market statistics. Of course, you don't say to anyone that you think they're lying, but most agents will be happy to give you a CMA (comparative market analysis) on a suburb you're interested in. After all, you are their business!
Friday, June 12, 2009
Get to know your Area BEFORE you Invest if you want to Make Money in Real Estate
Yesterday I spoke to a Broker in my area to check out financing for the 29 lot subdivision, and a smaller deal. I'm glad I did.
He gave me the lowdown on the property, why it hadn't sold (the past developer asked for $80K above market value), and also some useful information on the area.
Apparently, the suburb has two sides. After living in the area for just over a year I've only ever driven through the new housing estate and seen upmarket homes. However, apparently on the other side of the suburb there are some issues with violence. So what, properties still sell in these areas right?
Yes they do. But he also told me that the land across the road from the property I've been looking at took THREE YEARS to sell. Three years, apparently because of the bad name of the suburb. Well, three years of financing would take any profit away. You might be able to make money in this deal, but you might not. It's got too much gamble in it.
There's always the argument that if you price a property right it will sell anyway. But you've got to find enough people who want to live in that suburb who would be willing to buy there, no matter what the price is. I could market the lots as first home buyer cheapies but then I'd be competing with even cheaper suburbs with the same violence issue. Bottom line: product is upmarket but location is bottom market. What does this mean? Longer selling times and lower prices.
With one or two lots, you could sell to people out of the area, but with such a large number you'd rely on local buyers too.
It just goes to show how important public opinion is in buying an investment property. It can give you a great bargain and can also stop you from making money. Even though this area is miles from the rough area, because they share the same suburb name the stigma exists. So get to know your area, or if you don't, ask someone who does.
He gave me the lowdown on the property, why it hadn't sold (the past developer asked for $80K above market value), and also some useful information on the area.
Apparently, the suburb has two sides. After living in the area for just over a year I've only ever driven through the new housing estate and seen upmarket homes. However, apparently on the other side of the suburb there are some issues with violence. So what, properties still sell in these areas right?
Yes they do. But he also told me that the land across the road from the property I've been looking at took THREE YEARS to sell. Three years, apparently because of the bad name of the suburb. Well, three years of financing would take any profit away. You might be able to make money in this deal, but you might not. It's got too much gamble in it.
There's always the argument that if you price a property right it will sell anyway. But you've got to find enough people who want to live in that suburb who would be willing to buy there, no matter what the price is. I could market the lots as first home buyer cheapies but then I'd be competing with even cheaper suburbs with the same violence issue. Bottom line: product is upmarket but location is bottom market. What does this mean? Longer selling times and lower prices.
With one or two lots, you could sell to people out of the area, but with such a large number you'd rely on local buyers too.
It just goes to show how important public opinion is in buying an investment property. It can give you a great bargain and can also stop you from making money. Even though this area is miles from the rough area, because they share the same suburb name the stigma exists. So get to know your area, or if you don't, ask someone who does.
Thursday, May 28, 2009
What to Beware of when Making Money spotting in Property
One thing to be aware of when spotting or doing any property transaction is that the profit is not all ready calculated into the price.
Often, when owners or agents become aware that their property has "development potential" the price instantly skyrockets so that any money from a future development goes to them in the purchase price.
For example, the deal I am currently working on- the expected sales turnover of the 29 lots is about $4 million. Take out of that
$3 million purchase price and contributions
$200,000 agents commissions (if selling via agents and not through own marketing)
PLUS marketing fees
Plus interest capitilising at $16K a month * 18 months=
$288K
$70000 transfer tax/stamp duty
Possible $400K tax- still working out tax implications
Plus legal fees
Anyway from these numbers you can see that from these calculations there's almost no money in this deal. Ideally you want a $500,000 profit at least which gives plenty of cushion money for turns in the market and other unexpected happenings. And, it gives the developer a reason to pay you a spotting fee! For this one to be worth it the purchase price would have to be brought down at least to $1.5 million- making aquisition cost $2.5 million. There are many people who only do transactions like this when there is a good one million dollars in it for them, which is a good way to go.
Land speculation and subdivision isn't the only instance where this happens, it also happens in inner city or high demand urban locations where the land can be developed, and in conversions from aparments to condos or strata titling.
All it means is that there are deals out there that are advertised as "Development Opportunities" which aren't good deals and won't make you any money. You still have to walk away from some, even when spotting. But there are also others out there that are worth it, and with a little negotiating you can come out a good $50,000 to $500,000 richer.
Often, when owners or agents become aware that their property has "development potential" the price instantly skyrockets so that any money from a future development goes to them in the purchase price.
For example, the deal I am currently working on- the expected sales turnover of the 29 lots is about $4 million. Take out of that
$3 million purchase price and contributions
$200,000 agents commissions (if selling via agents and not through own marketing)
PLUS marketing fees
Plus interest capitilising at $16K a month * 18 months=
$288K
$70000 transfer tax/stamp duty
Possible $400K tax- still working out tax implications
Plus legal fees
Anyway from these numbers you can see that from these calculations there's almost no money in this deal. Ideally you want a $500,000 profit at least which gives plenty of cushion money for turns in the market and other unexpected happenings. And, it gives the developer a reason to pay you a spotting fee! For this one to be worth it the purchase price would have to be brought down at least to $1.5 million- making aquisition cost $2.5 million. There are many people who only do transactions like this when there is a good one million dollars in it for them, which is a good way to go.
Land speculation and subdivision isn't the only instance where this happens, it also happens in inner city or high demand urban locations where the land can be developed, and in conversions from aparments to condos or strata titling.
All it means is that there are deals out there that are advertised as "Development Opportunities" which aren't good deals and won't make you any money. You still have to walk away from some, even when spotting. But there are also others out there that are worth it, and with a little negotiating you can come out a good $50,000 to $500,000 richer.
Wednesday, May 27, 2009
How to Make Money with No Money in Property by Spotting
Today I drove to a potential development site- it's an approved subdivision which the bank has reclaimed through foreclosure. It requires almost $1,000,000 in contributions to the government and the asking price is $2 million. That's alot of money!
Wait, don't you have to have $3 million to make money from this deal? Don't you have to qualify for $3m of financing? The interest payments on that would be unbelievable!
The answer is NO!
If you wanted to do this development yourself those obstacles would be overcomable, but for the beginning entrepreneur with alot of heart and not the financial wealth to take on a big project like this, there is a much better way to make money which goes by the name of bird dogging, scouting or spotting.
It works like this: you find a potential deal, verify that it is a good deal and let a much more experienced and wealthy developer do the work for the bulk of the profit. Why would you be willing to let so much potential money go? Well what do you think of a quick $30,000? What about $50,000? More? This sort of cash is normal in spotting fees for this size development.
Spotting is a great strategy if you have enough knowledge to know what is a good deal, but not the knowledge or money to pull it off yourself. You may even find a developer willing to show you the ropes in exchange for a smaller spotter's fee, which is worth it in the long run. And they may be willing to fund your future developments.
These sort of deals aren't available everywhere, they suit markets where the population is growing, or for some other reason the demand for new housing is increasing. But they are out there.
While you might not be the biggest fish in the pond, you connect a developer with a deal, they reward you, and then provide housing to people who reward them. It's a win win win! You and the developer make money and people get quality housing! Best of all you get your spotter's fee up front which means you can make some quick money.
Wait, don't you have to have $3 million to make money from this deal? Don't you have to qualify for $3m of financing? The interest payments on that would be unbelievable!
The answer is NO!
If you wanted to do this development yourself those obstacles would be overcomable, but for the beginning entrepreneur with alot of heart and not the financial wealth to take on a big project like this, there is a much better way to make money which goes by the name of bird dogging, scouting or spotting.
It works like this: you find a potential deal, verify that it is a good deal and let a much more experienced and wealthy developer do the work for the bulk of the profit. Why would you be willing to let so much potential money go? Well what do you think of a quick $30,000? What about $50,000? More? This sort of cash is normal in spotting fees for this size development.
Spotting is a great strategy if you have enough knowledge to know what is a good deal, but not the knowledge or money to pull it off yourself. You may even find a developer willing to show you the ropes in exchange for a smaller spotter's fee, which is worth it in the long run. And they may be willing to fund your future developments.
These sort of deals aren't available everywhere, they suit markets where the population is growing, or for some other reason the demand for new housing is increasing. But they are out there.
While you might not be the biggest fish in the pond, you connect a developer with a deal, they reward you, and then provide housing to people who reward them. It's a win win win! You and the developer make money and people get quality housing! Best of all you get your spotter's fee up front which means you can make some quick money.
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